Short-dated US Treasury yields surged on Friday, closing near their intraday highs, after Federal Reserve Chair Warsh delivered hawkish remarks at the Jackson Hole global central banking symposium, prompting markets to significantly raise their expectations for rate hikes through mid-2027. The yield curve flattened notably, as long-dated yields rose only modestly.
The 2-year Treasury yield climbed 12 basis points to 4.35%, sitting less than 2 basis points shy of the year-to-date high set on July 23. This marked the second-largest daily gain of the year, trailing only the move on June 17, when the Fed concluded its first policy meeting under Warsh and the latest quarterly projections showed broader support for at least one rate increase this year.
Meanwhile, the 10-year and 30-year Treasury yields each advanced 5 basis points and 2 basis points, respectively, in late trading. Curve spreads, including 2s10s, 5s30s, and 2s30s, narrowed by the most since June 17.
Overnight index swap rates tied to Fed meeting dates climbed, with markets now pricing in a better-than-even chance of a 25-basis-point hike at the September 16 meeting. Traders are also pricing in 45 basis points of tightening by year-end and 60 basis points by mid-2027. Prior to Warsh's speech, the market had only priced in around 9 basis points for September, roughly 28 basis points by year-end, and about 45 basis points through mid-2027.
Federal funds futures volume surged as traders repositioned, with October contracts particularly active, exceeding 537,000 contracts and setting a record for that contract month.
As of 4:20 PM ET, the 2-year yield was at 4.3558%, the 5-year yield at 4.4878%, the 10-year yield at 4.726%, and the 30-year yield at 5.2098%. The 5s30s spread stood at 72.03 basis points, while the 2s10s spread was at 36.81 basis points.
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